Charity and 2016 tax planning begin at home

Giving to others can benefit you, too. Toronto-based Kim Inglis is an investment advisor and portfolio manager with the Reynolds Inglis Group within Canaccord Genuity Wealth Management. Here she shows ways you can combine charity and tax planning strategies to be generous to others while recognizing that your first obligation is to look after yourself and your family.

Canadians are a philanthropic bunch. According to the 2015 BMO Charitable Giving Survey, 80 per cent of Canadians plan to make a charitable donation in the next 12 months, averaging an annual total of $694.

While the percentage of people planning to donate is down 10 percentage points from last year, it is in line with the four-year average of 81 per cent, dating back to 2012.

Canadians are especially generous around the holidays. According to the national charitable organization, Imagine Canada, donations were expected to total approximately $5 billion during the final weeks of the year.

Donate securities to avoid capital gains tax

Cash donations are still the most popular way of giving, but both charity and donor can benefit from more efficient tax planning measures to achieve the philanthropic goals.

Gifting publicly-listed securities, such as stocks, bonds, and mutual funds, to registered charities is one such way.

A donor who sells the shares of appreciated securities, and donates the cash, will pay tax on capital gains.

However, if the shares are donated directly, the charity issues a tax receipt based on the fair market value of the securities. The charity gets the full value of the shares and the donor gets a full value tax credit without the imposition of capital gains taxes.

Bypass taxes and probate fees

Registered savings plans can also be used for philanthropic purposes by having the donor name a charity as beneficiary of his or her registered plan.

On death, the balance of the plan transfers directly to the charity, and the estate receives a tax credit for the value on disposition.

This can offset taxes on final income and effectively bypass probate fees. Flexibility is another advantage because the donor can change the beneficiary if circumstances change.

Donate life insurance for tax credits

Insurance can be used in a similar fashion by transferring the ownership of the life insurance policy and naming the charity as beneficiary.

When the donor passes, the charity receives the policy’s cash surrender value plus any net accumulated dividends and interest.

The resulting tax credit can be applied to a final tax return.

Also, any additional premiums paid to the insurance company by the donor are considered a charitable donation and are thus eligible for further tax credits.

Donate your assets but keep the income

Donor Advised Funds set up endowments wherein the donor makes an irrevocable contribution of cash and other assets, which are invested to maximize the worth of the donation and increase its value.

Investors can set grant recommendations and choose which registered charities receive donations.

In return, they are provided with an immediate tax benefit and they have a continuing philanthropic legacy.

Those wishing to donate to a charity but still needing income can use a Charitable Remainder Trust.

Assets, such as income-producing real estate, are transferred into a trust and the donor gets an immediate tax benefit.

The donor receives lifetime income and the charity receives the assets when the donor dies.


Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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